DTCC Connection

Mar 01, 2011 • DTCC Connection

Mutual Funds Networking Enhancements Simplify 529 Plan Monitoring

by Richard Marulanda


DTCC introduced new enhancements to its Mutual Funds Networking platform in March to help the mutual funds industry better monitor 529 Plans and comply with Internal Revenue Service (IRS) rules and regulations.


529 Plans, named for Section 529 of the Internal Revenue Code, are used to pay expenses at any qualified college in the U.S. They are popular investment vehicles that allow contributions to grow taxdeferred. The plans are municipal securities, so each state has its own program requirements and administrative methods, which can create complexities and inefficiencies when processing 529 transactions.


Rules and regulations for 529 Plans set specific limits on contributions, distributions and the number of annual investment election changes. For the purpose of monitoring these limits, the IRS requires 529 Plan administrators and managers to aggregate all accounts – across multiple distribution platforms – matching the same account owner/beneficiary information, and reporting back to all the parties involved.


Networking, offered by DTCC subsidiary National Securities Clearing Corporation (NSCC), is the mutual fund industry standard for account reconciliation and dividend processing. Through Networking, all customer account-level information – either in an omnibus or non-omnibus environment – can be exchanged and reconciled between fund companies and broker/dealers and other distribution firms, allowing identical information to appear on all parties’ records.


Omnibus 529 aggregation

As the mutual funds industry continues to migrate toward an omnibus accounting environment, firms and funds with omnibus relationships need to aggregate daily activity files containing sub-account information in order to capture multiple accounts across different platforms to abide by the IRS rules and regulations.


"Until now, firms and funds have been capturing this information manually via reports, spreadsheets, faxes and emails," explained Josephine Torelli, DTCC vice president, Wealth Management Services Product Management.


Working with the Investment Company Institute’s (ICI) 529 Plan Task Force, the Broker/Dealer Advisory and Bank/Trust Advisory Committees, DTCC has developed aggregation files for its Networking platform, which enable funds and firms to send and receive daily activity and positions in 529 Plan sub-accounts. These aggregation files streamline the reporting process and allow customers to more easily monitor limits such as contributions and distributions when an account is held direct and in a brokerage account.


"Customers are now able to systematically communicate and capture information such as the beneficiary’s address and Social Security number, cost-basis and earnings-to-date amounts, enabling them to easily meet compliance requirements using a standardized and centralized format," added Torelli.


To establish guidelines and provide instructions on how to manage the aggregation files on the system, DTCC and the ICI 529 Plan Task Force have created a Best Practice document for Omnibus 529 Aggregation, which will be available during the second quarter of 2011.


First impressions


While customers have only just begun to test the new Networking enhancements, initial feedback has been positive.


Lisa Klassen, principal, Edward Jones, a member of the ICI Task Force for Fund- Sponsored IRAs and 529 Plans, said, "These enhancements will allow broker/ dealers to improve the service and support provided to clients in relation to their 529 investments." @


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